week 3 - contract formation 2

• legally binding contract

  • yes agreement is important
  • but intention is also required
  • all the same; intention to be legally bound, intention to form a binding contract, intention to contract

  eg. if there's agreement to go eat lunch w/friends, why no contract? because there's no intention to be legally bound
• NEVER ask for the other partys' intention during disputes

  • Objectively ascertained intention = what a reasonable person looking on to the parties would conclude they intended
  • their intention is subjective
• Ermogenous case - about presumptions

  • however, all cases are always dependent on the specific circumstances
  • Presumed in commercial agreements there IS an intention to create legal relations (unless other evidence was provided)
  • Presumed in social & domestic agreements there is NO intention to create legal relations (unless other evidence was provided)
  • Following this case, we don’t take presumptions strictly anymore
• Social and domestic agreements

  • The distinction between these and commercial agreements IS NOT ALWAYS CLEAR
  • Eg. if a family business had dispute, would it be commercial? Or S&D
  • Always refer back to “DEPENDS ON CIRCUMSTANCES”
• S&D agreements - Balfour v balfour & Merritt v Merrit

  • dispute over whether a promise made b/w spouses was legally binding 
  • BvB: married at time of promise, considered NON-BINDING bc it was a domestic agreement, not intended to be legally binding
  • MvM: still married, broken relationship at time promise was made, considered BINDING bc there was intention to be legally bound
  • The factor in determining whether an agreement is legally binding is the intention of the parties involved
• S&D agreements - Todd v Nicol:

  • Nicol asked Todds’ to move over after death of husband and to give house to Todds’ when nicol dies. Nicol then asked Todds to move out
  • ‘the intention was to enter into a legally binding contract’
  • But when interpreting what the contract required, Todds’ lost
• IMPORTANT

  • entering a legally binding contract and interpreting what a contract requires are different things (smth similar)
• S&D agreements - Ashton v Pratt

  • domestic agreement
  • the terms agreed lacked detail that there was intention to be legally binding
  • The mere fact that this was a family arrangement did give rise to a presumption that there was no intention
• commercial agreements

  • Will usually have intention to create legal relations (depends on circumstance)
  • This type of agreement is entered into for commercial or business purposes, typically involving the exchange of goods, services, money
  • forms: sales contracts, service agreements, distribution agreements, licensing agreements, and more.
• HEADS OF AGREEMENTS / memorandum of understanding

  • very common in commercial agreements
  • a pre-contractual document outlining the main T's&C's of an agreement between parties (ie. makes sure both parties are on same page)
  • it is a roadmap for negotiating the final contract
  • while it is NOT legally binding, it shows the parties' intention to enter a formal agreement (foundation for contract)
• Honour clauses

  • specifically, exclude intention to create legal relations
  • express a commitment to fair and ethical conduct (ie. honour)

  Rose & Frank v JR Crompton, Jones v Vernon's Pools (intention excluded by wording in agreement and on competition coupon)
• Letters of comfort

  • confirming that another related company will be able to meet its obligation
  • usually NOT binding but when not specific enough, can be

  Banque Brussels case - court applied commercial agreement presumption (legally binding) and not enough evidence was shown to prove it wasn't despite the letter
• Government policies

  • NO contract related to government policy proposals

  Australian Woollen Mills v The Cth - there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry
• how to determine intention in commercial agreements?

  • to ask what the objective intention was
  • not what the subjective intention was, as it's likely the parties will make self-serving (selfish) statements
• Consideration

  • Good consideration = requirements of consideration is met
  • Not good consideration  = requirements of consideration is not met
  • must not be vague

  White v Bluett

  • Promise that loaned money needn’t be repaid if the borrower stopped complaining, is not binding
  • Even though consideration needs some minor value, IT MUST STILL HAVE VALUE 
  • Stop complaining has no value
• Consideration

  • A promisor is a party that makes promises to benefit the third-party. A promisee is a party who pays consideration to obtain the promisor's promise.
  • Consideration must come from the promisee, but doesn't have to reach the promisor
  • Good consideration: Promisee agrees to give $10,000 to a friend of the promisor 
  • Not good consideration: A friend of the promisee is arranged to give $10,000 to the promisor
• past consideration = promising to do something you’ve already done

  • Not Good consideration - nothing NEW of value is provided 
  • Roscorla v Thomas: A promise made by a seller in relation to a horse’s temperament after the contract for its sale was concluded was not binding; no good consideration for the extra promise
  • Making a promise AFTER contract is not binding
• • Executed consideration = consideration by performing an act
  • Eg. using carbolic smoke ball, the promise was $100 who used it and got sick, USING THE SMOKE BALL AND GETTING SICK was the executed consideration (the performance)
• Executory consideration = promising to do something in the future

  • Eg. supplier delivered stock to customer on 90 days to pay, is there an agreement that has been supported by consideration? 
  • YES, as there is executory consideration on both sides.
  • Even though nothing has happened yet, there’s good consideration on both sides because there is a promise
  • Applies to bilateral contracts
• consideration - existing contractual obligations

  • Performing or promising to perform an existing contractual obligation is not good consideration, even if it will take place in the future (ie.
  • basically, doing what you were always doing but for a new contract is not good consideration, you were going to do it anyway
  • Stilk v Myrick: Sailors promised extra wages were required to cover for others in an emergency anyway (employment contract); no good consideration.
• Practical benefit test

  • Says that the common law will treat the rules of consideration as being satisfied for a simple contract even when not satisfied

  Williams v Roffey Bros

  • Roffey Bros was contracted to finish job, they subcontracted William.
  • William couldn't finish it on time, so Roffey bros makes a promise to give extra money to finish off the job
  • William finishes the job, but Roffey doesn't give the full amount promised
  • Roffey Bros receives a practical benefit OR avoids a detriment (eg. avoids penalty from head contractor, need to find another subcontractor)
• Deeds

  • a special form of contract (‘contracts under seal’) subject to legal formalities (‘signed, sealed, delivered’), which can be binding even without consideration: why?
  • if an agreement is reached in the form of a deed, a promise can be enforceable even if there is no consideration
  • AN EXCEPTION FOR LEGALLY BINDING CONTRACTS WITHOUT CONSIDERATION
  • the seriousness in a deed, is the form the document takes, rather than the seriousness from the money in a consideration
• Deeds (continued)

  • deed of release (common eg.): where an employee is promised an amount of money from employer, so the employee would promise to not take legal action against employer. (basically bribing)
  • here, the consideration is bilateral, promise to pay money and promise to give up future legal action
  • might be used to give gifts (bare promises) where there is a desire from the outset by both parties to ensure the promise is legally binding
• deeds in a nutshell

  • legal document used to transfer ownership or rights to property from one person to another.
  • formal way of ensuring everyone is on the same page, preventing disputes
• Promissory estoppel

  • a way of enforcing promises when someone has acted based on that promise
  • if you make a promise, and someone relies on it to their detriment, you can't just change your mind without a good reason
  • AN EXCEPTION FOR LEGALLY BINDING CONTRACTS WITHOUT CONSIDERATION
• Promissory estoppel (continued)

  • promissory estoppel acts as a substitute for consideration and allows the party who relied on the promise to enforce it, even if there was no formal contract.
  • Need more than a promise, needs: assumption, inducement of assumption, acting/refraining in reliance, knowledge of intention to act that way, detriment if assumption not fulfilled, unconscionable action in failing to prevent damage
  • Crown Melbourne v Cosmopolitan Hotel
• simple contract

  • an agreement between two or more parties that creates legally binding obligations, with consideration.
  • What makes a contract "simple" is that it doesn't involve complex or elaborate legal formalities.

  eg. alice sells bike to bob for $100, they shake hands.

  • this verbal agreement makes a simple contract
  • the offer - sale of the bike
  • the acceptance - agreement to buy/shake hand
  • consideration - the bike and the $100
  • intention - both intend for agreement to have legal conseq.